Durability sets top performers apart
The August round of FE Crown recalculations have shown that top performing fund managers are showing consistency and durability, with many of the groups receiving the most top-rated five Crown funds backing up similar performances from the February round of ratings.
Macquarie, IOOF, AMP Capital and Perpetual were among the top few managers in both calculations, with, as table one shows, Legg Mason, Bennelong and SG Hiscock & Company also joining their ranks this calculation round.
Considering only 10 per cent of all funds are awarded five crowns, the number of funds these managers got with this rating, as shown below, is impressive.
Table 1: Management groups with four or more five Crown funds
|
Funds management group |
No of 5-crown funds |
|
Macquarie Investment Management |
8 |
|
IOOF Investments |
6 |
|
Legg Mason Global Asset Management |
5 |
|
AMP Capital |
4 |
|
Bennelong Funds Management |
4 |
|
Perpetual Investment Management |
4 |
|
SG Hiscock & Company |
4 |
Source: FE Analytics
Two of the strongest top performers, IOOF and Legg Mason, pointed to their funds’ active management combined with an ability to specialise as vital to their dependably high ratings.
When questioned by Money Management on IOOF’s durability, the firm’s deputy chief investment officer, Stanley Yeo, said its investment team structure allowed portfolio managers to specialise in asset classes. This is evident when considering that IOOF’s five crown funds came from a broad range of sectors.
Yeo also flagged the firm’s culture as a core driver of its consistent success.
Our culture encourages diversity of thought, [and] constant challenging of each other’s views,” he said. “We encourage our investment team to think outside the box and when it comes to picking investment managers, our open-door policy means we come across many interesting managers that other funds may not know about.”
The fund’s governance structure also enables its investment team to seize breaks when they see them, with Yeo saying it allows fast capitalisation of new opportunities and managers as they emerge.
“We aren’t afraid to be first mover and we are often the seed investor in newer boutique managers and strategies. This approach has allowed us to identify emerging strategies and managers early and have the conviction to back them,” he said.
“We believe investment managers in their early years of their business lifecycle tend to outperform as they have less funds under management and tend to be more motivated.”
Speaking on the last three years specifically, which the period of time the Crown Ratings are based on, Yeo said that IOOF’s overweight to Australian small caps and emerging markets were strong contributors to the firm’s success.
At the same time, an underweight allocation to fixed interest and overweight to international equities also helped.
Head of Legg Mason Australia, Andy Sowerby, similarly emphasised the firm’s ability to specialise as core to its high ratings across multiple asset classes.
He said that Legg Mason’s model of owning active managers across nine dedicated asset management firms, each of which is a specialist in their respective field, enabled it to achieve this.
Interestingly, four of Legg Mason’s five top performing funds came from the same affiliate, Martin Currie.
Martin Currie’s CIO, Reece Birtles, said this strong result reflected the manager’s disciplined and repeatable multi-lensed investment strategy. He pointed to a focus on four distinctive fundamental and quantitative research lenses, being valuation, quality, direction and sustainable dividend, as key to the funds’ high performance.
Again, these funds all showed strong durability, with each of them receiving four or five Crowns in the February calculations too.
Birtles said that Martin Currie’s steady focus on its four research lenses were also the driver of this consistency.
“For example, our continued strong outperformance over both the value style and the broader market in recent years reflects on how we manage the Legg Mason Martin Currie Select Opportunities Fund regardless of the prevailing conditions,” Birtles said, speaking on one of the manager’s five Crown funds.
“We believe that our proprietary investment approach has enabled us to position the portfolio according to the ‘reward’ available for taking ‘factor risk exposures’, and the market’s current valuation.
“Whilst our investment approach won’t deliver the same outcomes at all points in the cycle, it certainly has helped us to navigate the choppy conditions we have seen for value investors over the last three years.”
BT Financial Group and IPAC Asset Management were the most improved management groups this Crowns calculation period, with each recording a net improvement of eight Crowns across all their rated funds. Advance Asset Management and Colonial First State showed the next highest improvement as each gained six Crowns.
Macquarie had the most five crown rated funds with eight in total. The funds management group declined to comment to Money Management on this result.
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